The UK economy remains deteriorated, but the latest activity figures show a slight improvement at the beginning of 2024. The monthly ONS estimate indicates growth in added value of 0.2% m/m in January, buoyed by a rebound in retail and wholesale (+1.8% m/m) and construction (+1.1% m/m). Nevertheless, this follows a difficult second half of 2023, marked by a 0.5% drop in real GDP. Furthermore, we expect a very limited increase in activity in Q1 2024, which is only likely to partially compensate for the contraction in previous quarters.
Indeed, developments in private consumption remain contrasted. The latest CBI survey on retail sales again reported a significant improvement in the balance of opinion on sales volumes in March, which returned to positive territory for the first time in a year. However, these improvements are not yet reflected in hard retail sales data, which have remained depressed and stagnating for nearly a year, even though a slight increase was observed in February (+0.1% m/m).
Household confidence remained unchanged in March: while developments in the financial situation continued to improve, against a backdrop of falling inflation and wages rising in real terms, purchase intentions for durable goods deteriorated again and underscored consumers’ reluctance to spend in the current economic situation. Nevertheless, the real estate market has been recovering for several months, with prices rising again since last autumn (the Nationwide index rose 2.6% between September 2023 and February 2024) and new selling instructions are at a three and a half-year high, according to the RICS survey.
Disinflation continued in February, reinforcing expectations for a first rate cut by the Bank of England, which we expect for June. YoY, the consumer price index slowed from 4.0% in January to 3.4% in February. The disinflation trajectory between goods and services remains very different at this stage, even though these two components fell in February. At 6.0% in February, inflation in services came up against still very strong wage growth (+5.8% y/y.). Inflation remains an important brake on activity in the UK, which is expected to underperform again in 2024, with expected growth at 0.1%, identical to 2023.
Article completed on 26/03/2024
